Construction output growth slows in July
Construction output growth has slowed from June’s four-month high according to the latest Markit/CIPS Construction Purchasing Managers’ Index (PMI).The survey found that while house building expansion was slowing commercial activity continued to rise. Subcontractor prices are continuing to rise.
July PMI data signalled a slight overall loss of momentum across the construction sector, with business activity and incoming new work both expanding at slower rates than in the previous month. The pace of job creation at construction companies nonetheless remained strong in July, while ongoing skill shortages across the sector contributed to a further steep reduction in subcontractor availability. Moreover, subcontractor charges once again rose at one of the fastest rates since the survey began in 1997.
Companies that reported an increase in business activity mainly cited strong inflows of new work. Anecdotal evidence also suggested that improving domestic economic conditions had created greater opportunities to tender, especially for commercial projects, while some construction firms noted that the resumption of delayed projects had provided support to business activity levels in July. However, measured overall, new order volumes expanded at a slightly slower pace than the eight-month high recorded in June.
In line with the trend for output and new orders, July’s survey data pointed to an overall slowdown in employment growth across the construction sector. However there were widespread reports of skill shortages across the sector. As a result, subcontractor availability dropped for the twenty-fifth month running in July, which is the longest continuous period recorded by the survey for over a decade.
Chris Temple, engineering and construction leader at PwC, said: “The ongoing skills shortage is an area of concern. The sector has serious skills gaps, and while the government’s plan to create three million more apprentices by 2020 will help in the long term, the situation will get worse before it gets better, as older skilled workers retire. The shortage is also driving up subcontractor bills and this, combined with continuing rises in the prices of construction supplies, means firms may continue to feel pressure on margins.”
Strong underlying demand for construction materials and low stocks at suppliers continued to drive up input prices in July, with the overall rate of cost inflation reaching its highest level since March.
Looking ahead, UK construction companies are highly upbeat about their growth prospects over the next 12 months, with more than half (55%) expecting an increase in business activity and only 4% forecasting a reduction.
Tim Moore, senior economist at Markit and author of the PMI survey, said: “July’s growth slowdown is the first for three months and perhaps a sign that the post-election impact on construction confidence has started to diminish. Commercial activity was a key growth driver during July, however, residential activity expanded at one of the slowest rates for over two years, highlighting that the house building sector is struggling to gain momentum despite supportive demand conditions.”
David Noble, chief executive at the Chartered Institute of Procurement & Supply, said: “New business wins were less in evidence as backlogs were tackled. Meanwhile, suppliers scrabbled to meet demand for a number of materials in short supply. The performance of suppliers continued to be muted, but the decline in performance was the least serious since May 2012. And though buying resumed at a slower pace, the response to new work and ongoing activity endured at a healthy rate.
